Dear Smart Nifty Traders,
After 8 long weeks of my stay in San Francisco, California, where I was advising hedge funds and various institutions on Index Trading, finally I am back to Bangalore. During last 2 months, Indian markets were forming lower top and lower bottom, showing a sign of weakness and finally breakout happened on the downside, you can see the chart above with descending triangle and breakout zone. I was expecting minor bounce just after initial breakout on the downside below 5130 levels followed by further fall to 4600 in next 60 days, but Nifty did not bounced back, instead it continued fall for the next few days and finally we are around 4930/4940 levels. Almost all the global market has broken their support hence further downside is most likely.
We have already mentioned in our earlier posting [Bearish Outlook for Global Equity Market] that overall outlook is bearish and Nifty has gone down below the support line, in fact it has broken the lower trend line and this breakout move has lead to sudden slide in Nifty close to 4900 levels. Now the question is what will be the next level for Nifty? Well, we do not believe on any levels (although we do mention for the purpose of easy understanding) for Nifty because every support or resistances are broken during the swing in the market, what we believe is the right bet and the right bet at this point of time is to go SHORT in Nifty.
Going short in Nifty does not mean that one can stay cool and enjoy the profits but we must keep tracking the checklist for going LONG. This will help us in ensuring that our short position is correct and factors for going long is not seen in the market at this point of time. When you are still on your learning curve, it is a good idea to have a checklist.
The checklist should be part of your plan and should be referred to on any urge to trade: The following suggested checklist is for long positions:
#1. Are you able to see any persistent daily support? The low of each day (or bar) should be higher than the previous day (or bar). This is a sign of strength – FALSE
#2. Are there signs of strength in the background? Have you seen higher top and higher bottom formation – FALSE
#3. Is a selling climax going on? Selling climax is defined as the sharp fall (most likely lowest level) in the market on extremly high volume – FALSE
#4. Is there a narrow spread with high volume on a down-day? We must close on lows of the day. Have you seen this today, this is a sign of strength. – FALSE
#5. Is there a test with low volume today in a rising market? This is a sign of strength. – FALSE
If you are in the middle of a trading range? Be careful – only initiate a long trade if you are sure that the background action is strong and at this point of time background is weak.
God Bless You!
Prof. Sameer Jain [Student of Market], E-Mail: Sameer@hbjcapital.com
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